US Dollar: Coin flip for October rate hike – DBS

DBS Group Research economist Eugene Leow predicts a 50/50 chance of a Federal Reserve rate hike in October, based on current market sentiment. The upcoming FOMC meeting will determine whether this back-to-back hike occurs. Analysts are closely monitoring the nonfarm payrolls report due this week, as the consensus forecast of 90,000 jobs added could significantly influence the odds.

Recent improvements in labor market indicators, such as consistently low jobless claims and decreasing unemployment rates, suggest positive labor market trends compared to six months earlier. All these factors, combined with elevated expectations for Federal Reserve rate hikes and a moderate rise in inflation expectations, are contributing to the upward pressure on US yields.

The UST curve has also been affected by NY Fed President John Williams' stance against a back-to-back rate hike. Meanwhile, the Australian Dollar is at its two-month low near 0.6950, with disappointing August underlying CPI data from Australia dampening expectations for further Reserve Bank of Australia rate hikes. Chinese PMI data also failed to boost the Australian Dollar, despite a temporary halt in the US Dollar advance.

USD/JPY remains under pressure, trading below 157.00, as hawkish Bank of Japan expectations and intervention risks support the Japanese Yen against dismal domestic economic data. Gold is consolidating around the $4,200 level, benefiting from a decline in US bond yields, which act as a tailwind for the commodity. However, investors remain cautious due to rising US Treasury yields and a series of key macroeconomic data releases this week.

The Personal Consumption Expenditures Price Index for August will be released by the United States Bureau of Economic Analysis on Wednesday at 12:30 GMT, with market participants closely watching this figure as the Federal Reserve's preferred inflation measure.